On Friday, the UK's Financial Conduct Authority (FCA) announced it had launched an enforcement investigation into the London Metal Exchange's (LME) conduct in nickel trading last year.
On March 7-8 last year, LME staged an epic "London nickel short-selling storm", nickel price jumped 250%, once rose to a record high of $100,000 / ton. The LME suspended nickel trading on Friday and cancelled all trading after midnight on Friday, with up to 3.9 billion dollars worth of trades being retroactively cancelled. The move was highly controversial and caused a crisis of confidence in the LME.
The FCA said it had begun an investigation into the conduct, systems and controls put in place by the LME between January 1 and March 8, 2022. It stressed that it would take action to monitor the LME's efforts to improve deficiencies in its conduct, controls and governance.
In response, the LME said it would take proactive steps to improve liquidity in the nickel market and would co-operate fully with the FCA's enforcement investigation.
The Bank of England also issued a statement on Friday saying it planned to appoint an independent supervisor to report regularly on the progress of the London Metals Clearing House (LME Clear) remedies to improve its governance and risk management.
The Bank of England has already conducted a review of LME Clear, while the LME and LME Clear commissioned Oliver Wyman to conduct an independent review of factors influencing nickel market conditions in March last year.
The LME announced last week that it would resume Asian trading of nickel contracts from March 20. As confidence in the LME has been dented, nickel contracts on the exchange are trading at about half their previous levels. Part of the reason for the low liquidity, and the Asian session did not resume trading.
However, as the LME continues to wrestle with a crisis of confidence, its US rival, the Chicago Mercantile Exchange, is keen to take market share.
Traditionally, the CME's strength has been in copper and precious metals contracts, but it has struggled to challenge the LME's dominance in industrial metals. However, the Lunni storm gave CME a chance to overtake at the corner.
According to media reports, CME is planning to launch a nickel contract that would be settled using prices collected on a physical platform owned by UK-based Global Commodities Holdings, something the two companies have been discussing for months.
